PowerFleet, Inc.

Good morning and welcome to PowerFleet's first quarter 2021 conference call. Joining us for today's presentation is the company's CEO, Chris Wolff, and CFO, Ned Mattis. Following the remarks will be the opening for a call for questions. Before we begin the call, I would like to provide PowerFleet's safe harbor statements that include cautious regard and forward-looking statements made during this call. During the call, there will be forward-looking statements made regarding future events, including PowerFleet's future financial performance, All statements other than present and historical facts, which include any statements regarding the company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth, demand for company's product offering, and the industry trends are considered forward-looking statements. Such statements include are but not limited to the company's financial expectations for 2021 and beyond. All such forward-looking statements imply the risk of uncertainties and contingencies The company's actual results, performance, or achievements may differ materially from those projected or assumed in any forward-looking statement. Factors that could cause actual results or differ materially could include, amongst others, SEC filings, overall economic and business conditions, demand for companies' products and services, competitive factors, emergence of new technologies, and companies' cash position. Thank you for joining our call. I hope everyone is doing well and staying healthy.

During the first quarter, we continued to execute on our long-term strategic roadmap, which is focused on expanding our high-value solution offerings, growing our business in our targeted markets, and continuously increasing our high-margin recurring and services revenues. While we delivered consistent financial results in the quarter, our revenues would have been $1.8 million more had we not experienced a third-party electrical component supply issue that impacted some of our product lines and is impacting many industries globally. Fortunately, our supply chain organization acted swiftly to remediate the issues and we were able to build the products, but we were unable to recognize the revenues as these units were not delivered by the quarter's end. I will discuss the electrical component issue and our remediation efforts during the latter part of our call. Nevertheless, we did see our business pick up to near pre-COVID levels in Q1, albeit still lumpy in certain geographies due to infection rates, vaccination progress, and individual government actions. We are very encouraged by the business strength in Israel and our progress in the U.S. with major upgrades at both Ford and United States Postal Service and our signing new logistics logos. As Q1 progressed, we saw a sustained and measurable pickup in our new sales activity across our geographic regions, including our U.S. dealer channel, which is seeing record pipeline strength in Q2. Internationally, our team in Israel is nearly 100% vaccinated, and most of our employees are back in the office. Our operation in Israel is home to a significant part of our supply chain, engineering, and software development efforts, so it's great to have our employees healthy, our operations functioning at 100% of capacity, and the economy there reigniting. I will talk more about this after Ned walks us through the financial performance for the first quarter of 2021. Ned?

Thank you, Chris, and good morning, everyone. Turning to our results for the first quarter of 2021, Revenue for the first quarter of 21 was $29 million compared to $30.8 million in Q1 of last year. The year-over-year decrease in revenue was primarily due to the major shipment to Avis last year and the $1.8 million of shipment deliveries Chris mentioned in his opening remarks. It is worth noting that in Q1 of last year, we recognized $2.3 million in product revenue from Avis due to the final major shipment, which was absent in Q1 of 2021. High margin recurring and services revenue for the first quarter was $17.6 million or 61% of total revenue. This compares to $17.3 million or 59% of total revenue in the prior quarter and $17.6 million or 57% of total revenue in Q1 of last year. Product revenue which drives future services revenue was $11.4 million or 39% of total revenue. This compares to 13.2 million or 43% of total revenue in Q1 of last year. Gross profit increased to 50% of total revenue or $14.5 million from 48% of total revenue or $14.9 million in Q1 of last year. Now, turning to our expenses, total operating expenses for the first quarter of 21 were $16.4 million, down $1.9 million, or 10%, from $18.3 million in Q1 of 2020. As we stated previously, certain APEX savings that we realized in 2020 related to COVID-19 were to come back in 21, and this went into effect starting in January of this year. We do not currently expect our APEX to increase from Q1 run rates, except for marketing expenses that will increase slightly from Q1 as we believe timing is critical due to the pending 3G sunset in the U.S., which Chris will talk about shortly. Turning to our profitability measures, dot net loss attributable to commerce shareholders for the first quarter of 21 totaled $3 million or 9 cents per basic and diluted share. This compares to a net loss of $4.5 million or 16 cents per basic and diluted share in Q1 of last year. Non-GAAP net income for Q1 2021 totaled $61,000 or zero cents per basic and diluted share. This was an improvement compared to non-GAAP net loss of $1.3 million or five cents per basic and diluted share in Q1 of last year. Adjusted EBITDA for Q1 2021 totaled $1.4 million compared to adjusted EBITDA of $152,000 in Q1 of last year. Our liquidity position remains strong at quarter end with $41 million in cash and cash equivalents and a working capital position of $53.2 million. That concludes my prepared remarks.